Infineon thrives on cars, hikes outlook

By IBT Staff Reporter On 05/03/11 AT 6:16 AM

Infineon's decision to exit the wireless business to focus on chips for cars and energy-efficient machines has paid off, as strong second-quarter results let the German chipmaker raise its full-year outlook.

Infineon, spun off from engineering group Siemens more than a decade ago, last year chose to exit the mobile chip business by selling its wireless chip unit to Intel for $1.4 billion.

It decided to focus on its three core businesses -- automotive, industrial & multimarket and chip card security -- and is now reaping the benefits of a recovery in the car sector.

This quarter proved once again that focusing on energy efficiency, mobility and security is the right strategy, Chief Executive Peter Bauer said in a statement on Tuesday.

Unlike some of its rivals such as Texas Instruments , Infineon's production has so far not been hit by Japan's massive earthquake.

Nevertheless, it did not rule out an impact on its production in the current quarter, adding that problems with supplies and deliveries of raw materials could arise.

Infineon generates around 6 percent of its revenue in Japan and its production is mostly in the south of the country, which has not been hit as hard as the northern part of Japan.

In the fiscal year that runs until the end of September, Infineon now anticipates a 20 percent sales growth compared with around 15 percent previously and a full year operating margin of around 20 percent.

It had earlier said operating margin would be in the high teen percentage range.

Given the company's strong market position, particularly in auto and industry electronics, we remain very positive for the stock and expect that IFX will gain further market shares.

Infineon chips are found in two out of three cars worldwide, used for anything from fuel injection to power management for electric cars. The autos segment generates almost 40 percent of group sales and was up 24 percent from a year earlier.

Carmakers such as Volkswagen have reported stellar results thanks to rising demand in emerging markets

Infineon reiterated revenue and operating margin in the current quarter will be on par with the second quarter.

In the first three months of 2011, Infineon's second quarter, operating profit was 202 million euros, up 14 percent compared with the previous quarter. Sales were up 8 percent.

Infineon stock trades at 14 times 12-month forward earnings, according to Thomson Reuters StarMine, which weights analysts' forecasts according to their track record.